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High Yield And High Drama In Closed End Fund Proxy Battle

Published Tue, 10 Sep 2019 20:49:31 -0400 on Seeking Alpha

High yield and high drama define the last few months at Neuberger Berman High Yield Strategies Fund (NHS). The fund still trades at a ~7% discount in spite of solid historical returns and recently increased distributions. It's possible that the fund's relatively high leverage, high fee structure, and lack of management stock ownership are negatively impacting the market valuation. Saba is trying to replace the manager, and force a tender offer. If Saba's plan is successful, investors can profit from further closing of the discount, while collecting monthly dividends along the way.
Portfolio Strategy
NHS’ high yield strategy uses as a benchmark the ICE BofAML U.S. High Yield Constrained Index, a modified market cap index of US dollar denominated below investment grade corporate debt. They generally don’t stray too far from this benchmark. As a result, the fund's junk bond portfolio is well-diversified across industry:

Source: Fund Fact Sheet
The average maturity in their portfolio is 6.8 years. In the past year they’ve shifted away slightly from CCC credits towards more B and BB credits. Here is the credit quality breakdown as of the latest disclosure:
Source: Fund Fact Sheet

Although it isn't investing in the riskiest part of the high yield space, the fund uses quite a bit of leverage to enhance returns. Leverage is about 33% according to the latest fact sheet, and consists of senior notes and mandatory redeemable preferred stock, both... Read more